Good Jobs First is currently examining economic development subsidy programs in over 240 small and medium-sized cities. This blog is a part of a series examining these programs for provisions related to equity and transparency.
Companies seeking subsidies for a project are seldom content with just one tax break. Unfortunately, the lack of coordination between cities, counties, school districts, and state economic development agencies often results in excessive subsidization. Wilmington, Delaware has done something to break this pattern: its Property Tax Abatement Program prohibits companies from getting city property tax abatements if they also petition New Castle County to reduce the taxable assessed value on the same property.
Under the program rules, Wilmington may grant developers real estate tax abatements lasting up to 10 years. But if a developer is granted that abatement and then also petitions the county to lower the property’s assessed value (to reduce their county taxes), that automatically results in the revocation of their city tax abatement.
To quote the local lawmaker who proposed the rule, it “preclude[s] any double dipping by the building owner or developer.”
Petitioning for a lower assessment is a common corporate tactic. Most notably big box retailers, like Walmart and Home Depot, have deployed in multiple states the “dark store theory.” They argue that, for tax purposes, their operational stores full of goods, customers, and workers should be assessed at the same value as shuttered or “dark” big box stores nearby, which typically get reassessed at very low values.
Companies will also challenge their property assessment in anticipation of a local tax abatement expiring, hoping to keep paying less in property tax. Many jurisdictions are fighting those practices. Maine, for example, recently closed the dark store loophole in the state.
Frankly, Wilmington’s property tax abatement program is far from perfect. Depending on the project type, a developer can still avoid paying all or any of their city property taxes for up to 10 years. There is no requirement that subsidized developers hire workers locally or pay them a living wage. There is no disclosure of which developers benefit from the tax breaks, so we do not know how well this rule is enforced.
Remember: in most states, property taxes remain the largest single source of revenue to fund local public services, including schools. And in states like Delaware without a sales tax, property taxes are even more important. So having the provision to prevent developers from getting property tax breaks from multiple jurisdictions is a step in a good direction.